Ventra Prepaid Banking Partner Has Long History of Legal Trouble

Metabank is part of the Ventra program public-private partnership

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Beyond the everyday problems plaguing the Ventra rollout lies a potentially more troubling fact: The banking partner chosen as part of the Ventra program appears to have a long history of legal problems related to prior participation in prepaid debit schemes and other activities.

Metabank, part of holding company Meta Financial Group, Inc., was chosen by Cubic as a partner in the prepaid debit card portion of the program, according to the CTA. Based in Storm Lake, Ia., Metabank was once known as First Midwest Financial and has long been involved in creating and operating electronic payment systems such as prepaid debit card programs, in part through its Metapay subsidiary.

However, Metabank has experienced a series of legal and ethical problems since 2004. Some of these problems are related to issues such as fraud, engaging in deceptive business practices in the subprime lending market and also directly related to operating a prepaid debit card system much like Ventra.

A brief review of Metabank’s publicly-available legal history shows:

In 2004, the Sioux Falls School District filed suit alleging that MetaBank improperly allowed funds which belonged to the school district to be deposited into, and subsequently withdrawn from, a corporate account established by an employee of the school district.

In 2007, MetaBank was sued in conjunction with a roster of participating banks for providing a series of loans and lines of credit to car dealerships operating under the J.D. Byrider brand, accused in the past of predatory lending practices in the subprime auto market. It was alleged MetaBank “participated in the fraudulent scheme” by virtue of providing these lines of credit and loans despite being aware of the predatory consumer practices of the dealerships, and that MetaBank profited by receiving undisclosed “special benefits” for providing these loans.

In 2009, a Metabank employee embezzled more than $4 million by selling false certificates of deposit (CDs) and was sentenced to seven years in a federal prison after pleading guilty to one count each of wire fraud, making a false statement in a bank's books or records, money laundering and aggravated identity theft. Metabank was subsequently sued by other banks for a lack of supervision over its employees and for refusing to give the money back.

In 2010, a popular short-term loan product created by Meta Financial Group called iAdvance was halted by the Office of Thrift Supervision of the Securities and Exchange Commission due to alleged unfair or deceptive acts or practices in violation of Section 5 of the Federal Trade Commission Act and the OTS Advertising Regulations. MetaBank agreed to pay $5.2 million in restitution and fines over the program, which offered payday and tax refund loans in the form of prepaid debit cards. At the time, Metabank was prohibitied from entering into “any new third party relationship agreements concerning any credit product, deposit product (including prepaid access), or automatic teller machine”.

In 2010, Metabank's particpation in a popular program which marketed prepaid reloadable debit cards to primarily underbanked consumers called NetSpend created problems for NetSpend's IPO due to Metabank’s previous problems with the Office of Thrift Supervision. The OTS had directed MetaBank, had issued about 71 percent of NetSpend's prepaid cards, to obtain approval for entering new business partnerships or materially amending existing ones. The OTS regualtory action on Metabank was applauded by consumer advocate groups.

In 2011, Metabank was involved in a lawsuit alleging a gift card issued by Metabank charged a customer $15 to use the card, despite having a balance of $17.71 left on the card for purchases. The suit alleged breach of contract and “deceptive, misleading, and fraudulent conduct”.

All of which leads to another key question: What was the selection process the CTA used in selecting its partners for the Ventra program, and what criteria was used in determing Metabank's qualifications? As well, what oversight existed over the creation of the entire Ventra program?

If the Chicago City Council decides to go ahead and hold hearings over problems with the rollout of the Ventra program, as some aldermen want to do, there’s likely to be a whole series of questions the council members can ask of officials they call to testify.

Here’s another good place to start.

In Part One of Ward Room’s series on possible City Council hearings on Ventra problems, we looked at the reasons why CTA entered into a partnership with private companies for Ventra. In Part Two, we examined ways Ventra’s banking partner may be profiting from fees.